Starting a business in a time of economic difficulty may seem like an ill-advised venture, yet with self-employment on the rise throughout the period it seems that plenty of workers were willing to take that risk. Unfortunately, it now appears that many of those who took the plunge and set up their own company since the beginning of the credit crunch in 2008 failed in their gamble, as figures released this week by the Office of National Statistics (ONS) show.
According to the statistics, four in ten firms which were set up in the early months of the recession had folded by 2011, with over one million businesses entering administration in only three years.
Only 58 per cent of start-ups which were created in 2008 remain operational today. Yet of the businesses created in 2007 – before the economic downturn had a chance to have a detrimental effect upon first year takings – 63 per cent have survived until the present day.
Most firms which started under the pressure of an economic downturn found it difficult to secure a loyal consumer base while so many households were forced to slash budgets and cut back on excessive spending. Furthermore, as the first year of trading tends to be the one in which start ups have to spend the most on investing for the future, a number of small companies simply could not find the cash to keep their business running on a day to day basis.
The news has not improved significantly since the end of the recession earlier this year, either, as while long running businesses are now managing to post growth for the large part, small companies are still struggling to compete with low prices offered in a bid to entice consumers back into spending.
Town centres have been the greatest casualties in relation to mass closures, as the Forum of Private Businesses claims that an average of 32 shops per day closed during the summer months. These have largely been replaced by betting shops, pawnbrokers and payday loans companies, meaning that the traditional stores of the high street have all but faded into obscurity.
The toll the recession took upon the high street can be seen clearly when examining both the long and short term retail closures in recent years. Between 2000 and 2009, 15,000 retailers were forced to close in town centres due to a number of factors such as a drop in custom and rising business rates. Yet in the following two years more than 10,000 shop owners made the decision to liquidate their businesses – a dramatic increase which shows the devastation the recession wreaked upon local communities.
National chairman of the Federation of Small Businesses, John Walker, believes that the Government could be doing more to ensure the survival of a larger number of small businesses.
He says; “With the unprecedented economic situation the global economy faced in 2008, it is unsurprising that survival rates for new businesses dropped.
“We know the credit crunch starved businesses of capital – a deep recession in the UK reduced consumer spending power.
“While tentative growth has returned, the Government must continue to do all it can to help start-ups.”
Fortunately, the ONS also revealed figures which cast a positive light on new business start-ups. While 230,000 companies ceased to be operational in 2011 this figure was negated by the 261,000 firms which began trading in the same year – indicating that Britain is beginning to get back on its feet and investors are once more confident about injecting funds into new businesses.
Furthermore, while business rates are due to rise by 2.6 per cent next April, the Chancellor revealed plans to cut corporation tax by 2014 in his Autumn Statement. Currently, businesses pay a corporation tax rate of 24 per cent but this is due to drop by three per cent over the course of the next year.
Do you think setting up a small business during a time of recession is too much of a gamble for entrepreneurs to take, or will their hard work pay off when the economy picks up again? How could the Government take further steps to protect small business owners in the UK – is it a matter of pressuring banks into lending again, or would cutting business rates and taxes be a better long-term solution?
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